10 May Company Car Drivers Need Extra Care, Not Extra Costs
By David Brennan
The budget was a mixed bag for business drivers. Whether you simply own a company car or have responsibility for managing a corporate fleet, the Chancellor’s announcements have important implications.
The good news is that many businesses can expect to benefit from a competitive 22% corporation tax rate by 2014 and credit easing under the Chancellor’s budget. From our own experience, and what clients are telling us, we are optimistic about a recovery in 2012, but it is fragile.
In the need to balance the books, the Chancellor is inevitably giving with one hand while taking away with the other. While the tax relief for businesses will have come as welcome news to many, this reprieve will, unfortunately, be made up in other areas. This year, it is company cars that must face a tax raid.
As many organizations rely on business vehicles to function, these unanticipated costs threaten to hit the heart of the economic recovery.
The combination of significant increases to Company Car Taxation, together with reductions in the Writing Down Allowance and Leasing Disallowance main threshold to 130 grams of carbon per kilometer, creates a challenge for vehicle manufacturers and fleet managers alike. As many manufacturers were working to the previous guidelines, there will inevitably be a period of re-adjustment, which could see demand for contract renewal and slowing in the take-up of new vehicles.
We are not surprised by the direction of this policy to reward the choice of vehicles emitting lower emissions. Indeed, we have long supported businesses’ efforts to reduce the CO2 footprint of their fleets. However, the scale of the taxation does come as a surprise, given the Government’s previous rhetoric and pre-budget indications.
Businesses should now be looking to their fleet providers to advise on a tax-optimized fleet profile as costs can still be contained, but the criteria for vehicle selection to make these savings will most likely be tighter than ever before.
Despite this heavy blow, there were some more encouraging automotive developments. The decision to abolish the 3% diesel supplement is a positive move. Bringing diesel vehicles into line with equivalent petrol engines from 2016 should encourage environmentally-responsible vehicle choices.
I was also pleased to see the Chancellor mapping out the planned company car tax rates for the next five years, allowing drivers to recognize and consider the long-term benefits of driving lower-emitting vehicles, as well as helping companies such as ours plan for the future.
Away from company vehicles themselves, I have misgivings about the direction being taken with regard to Government spending on the roads. While the Government’s commitment to find new ways to finance our road infrastructure is welcome, this could open the door to more toll roads, which I am skeptical about.
I would highlight the example of the underused M6 toll road, which has some of the highest charges in Europe. Unsurprisingly, motorists are still opting to use the neighboring M6, where traffic levels are rising. Tackling congestion is important, but this must not come at an additional cost to business drivers – many of whom will be unwilling, or indeed unable, to pay.
Finally, there is the issue of fuel. While it is impossible to insulate the UK from the volatility of the global oil market, the Chancellor is able to control pump prices to a large extent and the decision to retain August’s fuel 3.02p per liter duty hike is therefore short-sighted, at a time when business travel risks becoming prohibitively expensive for some. Right now, business drivers need extra care from the Government, not extra costs.